Did you even know it was changing? Remember when VAT dropped to 15% to kick start the economy then rose to 20% to compensate for the reduction (It had previously been 17.5% for years).
A Little History
Back in 2014 (4th December 2014 to be precise) the way Stamp Duty was calculated, changed. Suddenly you were only charged within each tax band instead of the whole amount. This meant that if you were buying anything up to £900k you were financially better off. The Stamp Duty reduced.
In April 2016 it changed again. This time for investors and those that owned more than 1 property. If you only have one house, it stays at the new rate, have an investment or second property and you are moving you could be footing a bill for an additional 3% of the purchase price on top of the regular Stamp Duty.
What are the normal rates?
So what is changing?
In November 2015 the government announced a stamp duty increase the current stepped rates by 3 points for any properties over £40,000 from April 2016.
Someone buying a house for £200,000 will pay nothing on the first £125,000, and then 2% of the next £75,000, giving them a bill of £1500. Previously they would have paid 1% on the total purchase price, giving them a bill of £2,000. Thus although the percentage rates appear higher in some cases, the overall charge will mostly be lower.
The new rates will be
- Up to £125,000 : 0%
- £125,001 to £250,000 : 2%
- £250,001 to £925,000 : 5%
- £925,001 to £1.5m : 10%
- Above £1.5m : 12%
Here’s the latest change (from April 2016) on purchases of second homes or buy to let properties: (SDLT = Stamp Duty Land Tax)
- On a property costing up to £125,000 you will pay 3%, rather than 0%.
- On a property costing £125,000 – £250,000 you pay 5%, rather than 2%.
- On a property costing £250,000 – £925,000 you pay 8%, rather than 5%.
- On a property costing £925,000 – £1.5m you pay 13%, rather than 10%.
- On a property costing £1.5m+ you pay 15%, rather than 12%.
So a house costing £100,000 would have a bill of £3,000. On a £200,000 property you would pay £7,500 (3% on the first £125,000 then 5% on the next £75,000), and if you were spending £350,000 on a second home you would pay £18,000 (3% on the first £125,000, 5% on the next £125,000 then 8% on the remaining £100,000). Someone buying a second home costing £1m would face a bill of £73,750 (3% on the first £125,000, 5% on the next £125,000, 8% on the next £675,000 and 13% on the last £75,000).
Moss Properties Managing Director Sanjay Gandhi thinks this is to aid the buy to let sector and ‘reduce down accidental landlords and smaller landlords to provide longer term lets and less instability in lives around the uk’ as the ‘overseas markets work very differently and provide long term lets to tenants’. Claire Harvey MD at Seekers disagrees, ‘Landlords will still buy, if they are considering a purchase it is usually at least a 5 year investment to make it worth it, so anything additional in costs becomes negligible’
How does this affect you? (our Lancaster and Morecambe sellers)
If you are a landlord and considering expanding your portfolio you will have to dig deeper post April.
Pitfalls for Renters:
Rents may have to rise to ensure a Buy to Let is a good investment
Pitfalls for owner occupiers wanting to sell:
Properties sold to landlords MAY see more negotiation in offers or lower offers.
Note to sellers: Not every buyer is an investor/second home owner so sellers, this might not be a problem at all for you anyway.
(Just ask your agent each time you have a viewing, so you can be prepared)
Bonus for first time buyers:
If you are a first time buyer the choice will increase as the properties are less likely to be snapped up by buy to let landlords
Will things really change for a landlord? If rents rise, you will still get a similar investment yield anyway that you had before even with an increased upfront cost. You’ll need to do the sums.
What we have found
Buy to let investors did, as predicted wish to complete on thier homes prior to the upheaval in April. We even had many regular two home families rushing to hit before the deadline. Investors then teetered off a little in the wake, but seem to be back again now. The stamp duty is now an accepted part of an investment purchase. (Please consider the April 2018 ruling for the energy performace before buying an investment property as they will have to achieve higher than an F rating to be legal for rental.)
Ask us how to increase the likelihood of a sale and how to attract the right buyers YOU REALLY WANT!!
Those who can’t sell:
Who are you trying to attract? There are things that investment purchasers are specifically looking for and you have to present this isn the right way? Are you attracting the wrong buyers perhaps?
The GOOD NEWS:
Those who plan to buy their dream home before they sell will still have to pay the additional 3% but can apply for a refund once thier other property has sold. (there are time parameters on this)
What does this mean to the Uk property market?
In 2014 the government stepped in to assist the growth of the property market by making the SDLT stepped. Therefore reducing the cost of purchasing a house. The predictions back then was that it would be a catalyst to aiding growth. In parts it did, it made the financial strain of a purchase much easier, especially for first time buyers and investors. Yes, the market saw an increase this year of purchases and in 2015 there were over £1.4 million transactions. Much higher than previous years. It didn’t really have the influx of buyers that was predicted, for those who were already purchasing it made a big difference, and even now I still come across people who don’t know that it has changed for the better.
The future – Our buy to let investors prefer the more reasonably priced homes that will only see a small increase in upfront costs anyway.
Before the announcement lots of the industry gurus had predicted an average house price increase of 5% in 2016 individual predictions differed from a mediocre 2.5% (Property wire) to 7.30% (Beacon Economic forecasting). It would be interesting to see exactly what happens given the very mixed press regading house price continuing to rise and slower mortgage take ons.
We may see a shortfall in new landlords to market but overall it will see that home owners that do go on to sell their properties will be much happier selling to first time buyers and owner occupiers and gaining the price they really want.
Local investors that are serious will see the bigger picture and their nest eggs will be fine if they are in it for the long haul anyway.
As for our Lancaster and Morecambe owners that wanted to rent their old homes to buy a new one – may have further considerations to think about, being realistic about moving initially will be something to consider. Realistically, it’s not insurmountable unless you really are runnning very close to the wire, I would question (as additional costs can arise, whether you really NEED to make that move right now.)
As a side note: The government is panning to invest circa £60million of the funds they gain from this into areas where 2nd home ownership is particularly acute, interesting indeed!
A small little bonus for sales only agents: Less rentals may mean less ‘To Let’ signs all over the place! These are almost like junk mail on the outside of houses at the moment and don’t help first time buyers feel comfortable buying in high rental turnover uptake areas.
I’d love to know how you think this will affect you? Are you currently struggling to sell and weighing up your options? or perhaps trying to build a local property portfolio for your children?
Why not drop me an email on firstname.lastname@example.org
Nothing is ever straight forward and sometimes carefully electing the right moving strategy will lessen your monetary burden and help to attain your dream home.
I’d love to hear from you on this issue
call me, I’m Victoria and I’m the director of VMOVE estate agents in Lancaster. I’m a fountain of knowledge and here to help you make the right decision even if you decide to stay !